Buy Sadbhav Engineering, target Rs 565: Edelweiss Financial Services

Edelweiss Financial Services has a buy call on Sadbhav Engineering Ltd. with a target price of Rs 565. The current market price of Sadbhav Engineering Ltd. is Rs 328.6. Time period given by the brokerage is Intra Day when Sadbhav Engineering Ltd. price can reach the defined target.

Sadbhav Engineering Ltd., incorporated in 1988, is a midcap company with a market cap of Rs 5747.62 crore.

Investment rationale by Edelweiss

Sadbhav Engineering (SEL) is a leading infrastructure company with presence in road, mining and irrigation segments. Also, its subsidiary, Sadbhav Infrastructure Projects (SIPL), has 19 BOT assets, including 8 under construction HAM projects. SEL’s standaolne revenue reported 7% YoY topline growth to Rs 1,104cr. However, on a like-to-like basis, the company’s topline grew by 20% YoY to Rs 1240 cr which is higher than our expectations of Rs 1216 cr. The company reported EBITDA margin of 11.2%, a 60 bps improvement YoY and for the full year of FY18 the margin stood at 11.8%, a 110 bps improvement over previous year. Margin expansion was backed by strong operating leverage. We expect SEL to report 22% topline CAGR over FY18-20E and EBITDA margin to likely to improve 66 bps to 12.5% over FY18-21E. With topline growth, margin improvement and limited investment in BOT projects, we believe RoCE to improve significantly from the current 10% to 15% in FY20E. We maintain our ‘BUY’ rating with an SOTP based target price of Rs 565.